Iceland's parliament has approved a controversial payout of nearly 4 billion euros ($6.4 billion) to Britain and the Netherlands, which had compensated tens of thousands of savers in a failed Icelandic bank.

Although the payout has stirred resentment among ordinary Icelanders hit hard by their country's financial meltdown in 2008, lawmakers approved the measure by a vote of 33 to 30.

"Congratulations Iceland!" one lawmaker from the governing left-wing coalition shouted out after the bill had passed.

An opposition MP cried out "treason".

The measure approves the payout of 3.8 billion euros to the British and Dutch governments, which had partially compensated more than 320,000 of their savers who lost money in the collapse of the Icesave online bank.

Icesave, an online subsidiary of the Landsbanki Bank that had to be rescued in October 2008 as the global credit crunch hit, had attracted savers due to its high interest rates.

The British and Dutch governments turned to Reykjavik for the money to be returned and an initial compensation deal was approved by Iceland's parliament in August.

But amendments negotiated by Social Democratic Prime Minister Johanna Sigurdardottir in order to get the deal through parliament were rejected by Britain and the Netherlands.

The dispute threatened to sink Iceland's efforts to quickly join the European Union, forcing Ms Sigurdardottir to return to the parliament with a new bill in line with the initial deal.

The measure foresees staggering the payment of the 3.8 billion euros through to 2024. The total figure is equivalent to nearly 40 per cent of the country's annual gross domestic product.

Opposition

A poll taken in August suggested nearly 70 per cent of Icelanders were against the Icesave deal, the compensation amounting to about 12,000 euros ($19,200) for each citizen on the island nation of 320,000 people.

"History will show that we are doing the right thing," Finance Minister Steingrimur Sigfusson said after the vote.

But Birkir Jon Jonsson, deputy leader of the opposition Progressive Party, said the government's handling of the issue has been "shameful from the beginning".

The bill must still be signed into law by President Olafur Ragnar Grimsson and a petition asking him to veto the measure has already garnered nearly 40,000 signatures, a record in Iceland.

The dispute over the compensation scheme had also delayed the disbursement of funds under a $2.3 billion IMF standby loan arranged in November 2008 following the collapse of Icelandic banks.

The IMF said earlier this month that it had reached an agreement with Iceland on the release of a third tranche of the loan.

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